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Sustainable or adequate? Analytics can answer both for pensions systems

Learn how analytics can provide public pension plan administrators insights into the level of benefits they are providing in contrast to what citizens need.

Overview

While many plan administrators are using analytics to measure the financial sustainability of public pension plans1, few have done anything to measure whether the pension benefits are actually adequate enough to keep people out of poverty in their old age. The adequacy issue is on the minds of citizens, and it should be on the agenda for pension leadership.

According to respondents to the Accenture Global Retirement Services Survey, 83 percent say that they are worried about their financial situation after retirement, and 57 percent believe that their standard of living will drop when they stop working.2 Using analytics to report on pension adequacy may help to quell the anxiety of many who don’t think they will be financially comfortable during retirement years. Furthermore, it can help pension systems to understand the level of benefits they are providing in contrast to what citizens actually need. Ideally, this information will help pensions to prove to the public that they are fulfilling their mission of providing support for retirees.

Background

Perhaps the public debate over pension systems being underfunded has moved the spotlight away from adequacy. However, the issue has not gone unnoticed by citizens. An overwhelming majority of Americans (87 percent) say that the increasing number of Baby Boomers retiring without a pension and adequate savings is straining families and the economy.3 The National Institute on Retirement Security reports that 90 percent of women and 80 percent of men surveyed expressed concern about their retirement prospects, and concern is high consistently across generational lines.4

With 25 million Americans counting on a public pension5, it should not be an either/or debate. Pension system administrators must figure out how they can measure their mission effectiveness by delivering adequate pensions, and measure the robustness of their funding.

Analysis

Most pension administrators only have a limited view: members’ current salary as compared to pre-retirement salary. Understanding the full financial health picture of a pensioner requires analyzing data that comes from outside of the pension organization’s walls.

Data from other agencies will show what human services programs a pension plan member uses. Are they accessing food stamps, welfare benefits or low-income housing? The findings may reveal that government is paying money to retirees through other social or human service programs because pension system benefits are inadequate.

Identifying other sources of income—such as spousal income, income tax credits or income from a second job—will provide a picture of total income. Pension systems can then determine how much of that total income is being provided by the pension plan.

If there are roadblocks to crossing political boundaries to access necessary data, pension system administrators can survey members to learn overall percentages of how many pensioners are working post-retirement, how many are accessing human services programs because of the inadequacy of their pension.

Recommendations

Pension systems can get to insight-driven answers by making the investment in building an in-house analytics capability. Those who do not have a deep bench of analytics talent will need to recruit and retain people with these skills. Alternatively, they can feed data on current benefits to entities such as unions, lobbyists or academic researchers to analyze, or look to third parties to synthesize the data, just as many do for financial analysis. Accenture research shows that while 69 percent say data analytics is very useful for analyzing portfolio performance statistics, 92 percent of those surveyed believe their agency would benefit from doing more with analytics.6

Data analytics will help pension systems to understand if they can adequately support people in their old age. They can use analytics to work in more targeted, proactive and efficient ways to harness huge volumes of data to make more informed choices about adequacy. The exercise of gathering data to understand adequacy may also help pensions systems to be more productive. Leaders can identify opportunities to maximize resource use and provide quality pension services at lower cost—which is at the heart of pension transformation.

Podcast

Listen to this podcast to learn how analytics can provide public pension plan administrators insights into the level of benefits they are providing in contrast to what citizens actually need.

While many plan administrators are using analytics to measure the financial sustainability of public pension plans1, few have done anything to measure whether the pension benefits are actually adequate enough to keep people out of poverty in their old age.

In this podcast Owen Davies, Managing Director of Accenture Pension Services talks about how pension organizations can get to insight driven answers through analytics.

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